Bundeskartellamt prohibits merger between Springer/ProSiebenSat.1

The Bundeskartellamt has prohibited the merger between Axel Springer AG (“Springer”) with ProSiebenSat.1 Media AG (“ProSiebenSat.1”). According to Bundeskartellamt President Böge the merger would lead to a degree of market power which was unacceptable under competition law on the TV advertising market, reader market for over-the-counter newspapers and the national advertising market for newspapers.

According to the Bundeskartellamt’s findings ProSiebenSat.1 and the RTL TV group, which belongs to the Bertelsmann group, together hold a dominant position in the TV advertising market with a constant market share of approx. 40 % over the last years (a so-called “uncompetitive duopoly” without any substantial competition from outsiders). The merger would lead to a further assimilation of the corporate structures of the two conglomerates in the neighbouring markets for newspapers and magazines and would result in a number of interlocks between Springer/ProSiebenSat.1 and Bertelsmann. This would further secure and strengthen the duopoly. The interlocks would result from mutual minority shareholdings of Springer and Bertelsmann in several private radio stations such as Radio Hamburg and Antenne Bayern, as well as in press distribution companies e.g. in Leipzig, Dresden, the Palatinate and Berlin; in addition Springer and Bertelsmann mutually control the rotogravure company Prinovis. With the merger the newspaper BILD would lose its substitute function as currently the only economic alternative to national TV advertising for advertising customers.

The merger would also lead to a strengthening of Springer’s dominant position in the national reader market for over-the-counter newspapers. With its newspaper BILD Springer holds a market share of approx. 80 % in this market. The merger would enable Springer to further secure and strengthen BILD’s position through cross-media promotional and editorial measures (cross-media promotion).

Finally the merger would also lead to a strengthening of Springer’s market position in the national advertising market for newspapers. With its newspapers BILD and Die Welt the Springer publishing house already holds a paramount market position with a share of approx. 40 %. The merger would enable Springer to offer from one source coordinated product advertising campaigns in several media and to launch cross-media advertising campaigns for third parties. Thus Springer’s market dominance in the advertising market for newspapers would be further secured.

In the course of the proceedings the merging parties had made a number of commitment offers in order to have the merger cleared.

First Springer had offered a number of licensing commitments. Examples are the commitment not to use the BILD brand name in TV programmes or the obligation to market TV advertising slots on ProSieben/Sat.1 programmes separately from Springer’s advertising offers. Control of the adherence to these commitments was to lie with the media regulation authorities of the Länder as part of their licence monitoring functions.

Bundeskartellamt President Dr Böge stated: “These licensing commitments are behavioural commitments which require constant monitoring and which are consequently not acceptable under competition law.”

Springer then offered to sell its shares in the rotogravure company Prinovis and in those radio stations and press distribution companies in which Bertelsmann also has shares. Springer also offered to sell additional business divisions and holdings in TV programme magazines, further magazines and newspaper publishers, radio and metropolitan TV stations, advertising journals and online companies. According to the purchase contract Springer was obliged to offer these business divisions and participations as part of the merger proceedings. These structural measures would have prevented additional interlocks between the members of the duopoly. Ultimately, however, compared with the current situation, the merger would still have strengthened the duopoly albeit to a lesser extent than had the project been realized without obligations.

Shortly before expiry of the examination period Springer had made a new proposition which was to sell the TV station ProSieben. The Bundeskartellamt had accepted the proposition on the condition that ProSieben was sold before the merger was put into effect and the station was detached from advertising slot sales via SevenOne Media, a subsidiary of ProSiebenSat.1. A detachment of the TV station ProSieben from the acquisition project would have significantly improved the competitive conditions on the TV advertising market, which is currently characterized by an uncompetitive duopoly. Selling ProSieben to a third party would not have prevented a strengthening, albeit to a lesser extent, of Springer’s dominant position in the reader market for over-the-counter newspapers and the advertising market. However, in the view of the Bundeskartellamt the ensuing improvements in the TV advertising market would have outweighed the deterioration of competitive conditions in the reader and advertising markets affected.

The Bundeskartellamt had therefore signalled to the parties concerned the possibility of clearing the merger under the suspensive condition that ProSieben was sold.

Bundeskartellamt President Dr Böge stated: “This would have meant that the merging parties could have held talks about selling the TV station ProSieben without time pressure and the clearance could have taken effect precisely at the moment when the condition was fulfilled.”

In terms of revenue from TV advertising the sale of ProSieben would have almost halved the size of the acquisition object.

From the outset the Bundeskartellamt had rejected the proposition of a post-merger sale because ProSieben was the central feature of the targeted object. To accept this proposition, and consequently clear the project with its anticompetitive effects, was therefore out of the question. This would have resulted in the creation for an indefinite period of time of market structures which were inadmissible under competition law. This would have been the case even in the scenario of a transfer “for a legal second” as this, in connection with fairly long-term trustee solutions lasting in any event until January 2007, would have resulted in enormous competitive risks. It could not have been ruled out that until fulfilment of the obligation, factors determining ProSieben’s economic value and competitive position, such as human resources (e.g. editing, TV advertising marketing for ProSieben) would have been transferred to the remaining P7S1 TV stations. In organizational terms the station is closely integrated in the P7S1 TV station group. Marketing and the acquisition of rights are currently centralized. The station is an integral element of the concept of all P7S1 stations. If the sale of ProSieben, for whatsoever reason, had ultimately failed, involved divestiture proceedings would have been necessary in order to remedy the legally unacceptable structures which had been created.

Only four days after offering to sell ProSieben Springer withdrew its offer because an internal evaluation had shown that a pre-merger sale of the ProSieben TV station was out of the question.